Today’s Spotlight Market
In addition to estimates that Cotton demand is rising, traders are looking at weather forecasts that are calling for well above normal temperatures as we head towards the end of July. The National Weather Service in its 6- to 10-day outlook has the western and southern portions of the U.S. experiencing above to well above normal temperatures, with normal to below normal participation expected. This includes the key Cotton growing areas of Texas and the Mississippi Delta region. This forecast may be influencing a bit of a ?weather premium? on futures prices in addition to the rather bullish demand forecast.?? ?
Fundamentals
The rather sleepy Cotton futures market awoke with a vengeance this week, as a government report forecasted higher than expected demand. On Tuesday, the USDA released its monthly crop production and supply/demand report which had surprises for traders in both grains and softs. For Cotton, the USDA forecasted U.S. Cotton production at 15.8 million bales for the upcoming 2016/17 season, while this estimate was slightly above traders? estimates, it was the data in the supply/demand report that really caught the market off guard. The USDA raised U.S. Cotton exports to 11.5 million bales and lowered ending stocks to 4.6 million bales from 4.8 million bales last month. Globally, world Cotton ending stocks were lowered to 91.29 million bales from 94.73 million the previous month. While both U.S. and global Cotton inventories are still relatively ample, the overall trend appears to be leaning towards increased global demand, which is catching commercial traders, who are overall net-short Cotton, on the wrong side of the near-term price trend. New-crop December Cotton closed the session Tuesday up the 300-point limit, and even briefly rose the expanded 400-point limit during the early morning hours.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for December Cotton, we notice prices started to display some bullish tendencies late last week, just prior to the release of the July USDA report. Momentum-based trading systems would have received a bullish signal once the 2016 high of 66.64 was taken out to the upside. The 14-day RSI has soared well into overbought territory, with a current reading of 79.34. The aforementioned recent high at 66.64 now appears to be support for the December futures, with resistance seen at the psychologically important 75.00 price level.??
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